What a difference a year makes: last December, just as the ECB was about to shock the market with the announcement of its first €20 billion QE tapering, macroeconomic data mattered, especially since the Fed’s tightening intertia appeared to truly be data-dependent, if only for a very short period of time. Fast forward one year, when 3 rate hikes into the Fed’s “paradoxical” tightening cycle, in which much to the BIS’s shock the higher Fed Funds rates rise, the easier financial conditions get, a “dovish” December rate hike is assured, and as such tomorrow’s payroll report, which will probably print withint a few thousands of 200K, is completely irrelevant.
Still, to at least some headline-scanning algos, tomorrow’s jobs report will matter, if only so that it can respond in a knee-jerk reaction, and be stopped out by yet another group of headline-scanning algos whose only job is to make sure the first group of algos pukes their trades at a loss, regardless of what the underlying data is.
With that in mind, and with the understanding that fundamental data hasn’t really mattered since 2009, here is what Wall Street expects – and algos – will expect from tomorrow’s charade, which no matter what will send the market higher.
The BLS will release November’s Employment Situation Report at 1330 GMT (0830 EST) on Friday 8 November
- After October’s bounce-back, analysts expect normalisation in the rate of payroll additions (consensus 200k)
- Wage growth may be buoyed by calendar effects, pushing the Y/Y rate up to 2.7%
SUMMARY: Analysts expect payroll growth to ease in November; the October data was boosted by unwinding negative effects from hurricanes Harvey, Irma and Maria, and therefore, analysts will see a slowing as more of a normalisation, rather than the beginning of a new slowdown. There may be some upside in retail hiring given the early Thanksgiving Holiday. Rounding effects may result in the rate of joblessness slipping slightly. Earnings growth is likely to be supported by calendar effects, which may push the Y/Y rate up to 2.7%, matching the pace of annualised wage growth seen in Q3.
- Non-farm Payrolls: Est. 200k (144k to 261k), Prev. 261k
- Unemployment Rate: Est. 4.1% (4.0% to 4.3%), Prev. 4.1%
- Average Earnings Y/Y: Est. 2.7% (2.5% to 2.8%), Prev. 2.4%
- Average Earnings M/M: Est. 0.3% (0.1% to 0.5%), Prev. 0.0%
- Average Work Week Hours: Est. 34.4hrs (34.4 to 34.5hrs), Prev. 34.4hrs
- Private Payrolls: Est. 190k (155k to 250k), Prev. 252k
- Manufacturing Payrolls: Est. 17k (9k to 35k), Prev. 24k
- Government Payrolls: Est. 5k (-4k to 10k), Prev. 9k
- U6 Unemployment Rate: No forecasts, Prev. 7.9%
- Labour Force Participation: No forecasts, Prev. 62.7%
CONSENSUS ESTIMATES BY BANK:
- Capital Economics (261K)
- Goldman (225K)
- Wells Fargo (220K)
- Lloyds (220K)
- Barclays (200K)
- UBS (190K)
- BMO (190K)
- TD Securities (175K)
- RBC (175K)
- JPMorgan (175K)
- Societe Generale (165K)
TRENDS: US payroll growth has averaged 169k per month in 2017; as a comparison, in the first ten months of 2016, payroll growth was averaging 192k, and as a whole for 2016, payroll growth averaged 187k per month in the year. The trend rate was hit in September following disruptions caused by hurricanes Harvey, Irma and Maria. However, on a three-month rolling average basis, payroll growth is running at a clip of 162k heading into the holiday season, rising from the previous 121k on the same basis.
INITIAL JOBLESS CLAIMS: Heading into October’s Employment Situation Report, initial jobless claims were averaging 231,250 on a four-week rolling basis; and heading into the November data, that pace has increased to 241,500 on the same basis. “Back to the pre-hurricane trend,” Pantheon Macroeconomics said, “the trend in claims has been re-established just under 240K, returning to its pre-hurricane level and perhaps even a bit lower.” The economic consultancy has noted that, as a share of payroll employment, claims are now at an all-time low, and that appears to be consistent with labour demand at elevated levels. “This picture is unlikely to change anytime soon; indeed, if economic growth is sustained at the recent 3% trend, claims probably will fall to new lows. That, in turn, will reduce fear of job loss and support even higher levels of consumer confidence.”
ADP EMPLOYMENT REPORT: The ADP reported 190k payrolls were added to the US economy in November, which was in line with the consensus, and the prior remained unrevised at 235k. “The job market is red hot, with broad-based job gains across industries and company sizes,” according to Moody’s chief economist, who helps compile the survey. “The only soft spots are in industries being disrupted by technology, brick-and-mortar retailing being the best example. There is a mounting threat that the job market will overheat next year.”
CHALLENGER JOB CUTS: The payrolls processor’s survey showed US employers announced 35k job cuts in November – up 30% Y/Y and 17% M/M; it brings the 2017 total up to 386k which is 22% fewer than the November’16-YTD total. “Employers have reported a lack of skilled workers to fill demand in many industries,” Challenger said, “in this tight labour market, those with requisite skills and training have a leg up over the competition.” It added “opportunities exist for job seekers,” though “it remains to be seen whether the recent tax reform bill will have a significant impact on job growth or announced cuts. It may make it easier for companies to combine, which generally leads to eliminating redundancies.”
BUSINESS SURVEYS: The November ISM manufacturing survey recorded the rate of employment growth easing slightly (59.7 vs 59.8 previous), though has now remained in expansion for the fourteenth consecutive month; ISM noted that “employment expansion remains strong in spite of signs of labour market tightening.” The non-manufacturing ISM saw the employment sub-index fall by around 2 points, though has been in expansion for the 45th consecutive month. November’s manufacturing PMI from IHS Markit noted that employment levels were growing at the second-strongest rate since June 2015. The services PMI saw employment growth rising to a three-month peak, and points to “solid non-farm payroll growth of circa 200,000 as companies continue to take on staff in encouraging numbers to meet rising order books,” the survey-compiler said.
WHAT BANK DESKS ARE SAYING
BARCLAYS (EST. 200K): We expect payroll employment to rise by 200k, with private payrolls up 195k and government payrolls up 5k. Our forecast would represent a modest slowing from the 261k recorded last month, but we see that number as influenced by a storm-induced rebound in hiring that is not representative of the underlying trend. Hence, we view the moderation in employment growth this month as labor markets returning to a more normal state. At 200k, employment growth remains in line with the average monthly increase during the recovery and well in excess of that needed to keep the unemployment rate steady. For the unemployment rate, we forecast another one-tenth decline to 4.0%, but note that this is partly due to rounding effects, as the unemployment rate in October to three decimals stood at 4.065%; a minor drop will cause it to tick lower. Elsewhere in the report, we forecast a bounce in average hourly earnings to 0.3% m/m (2.7% y/y) and expect average weekly hours to remain unchanged at 34.4.
BMO (EST. 190K): After getting buffeted by hurricanes in the past two months, nonfarm payrolls are expected to increase a solid 190,000 in November. This would mark a pickup from the 12-month average (167,000) due to the perkier economy. A steadier participation rate (following a big retreat last month) should hold the unemployment rate at a 17- year low of 4.1%, with downside risk given a further improvement in net job prospects in the Conference Board’s consumer confidence survey. A likely snapback in average hourly earnings should kick the yearly rate up to 2.8%, at the high end of its past-year range, though still no threat to inflation. Following Chair Yellen’s recent upbeat testimony on the economy, the expected solid jobs report should seal the deal on a December 13 rate hike.
CAPITAL ECONOMICS (EST. 261K): After the disruption to the payrolls figures caused by Hurricanes Harvey and Irma, with a near-stagnation in September being followed by a 261,000 surge in October, we forecast a more normal 200,000 gain in non-farm payrolls in November. The latest indicators suggest that employment growth remained strong last month. Jobless claims are close to multi-decade lows, while the business surveys still look strong. The employment index of the Markit Services PMI climbed to 54.1 November, putting it close to its highest level in two years. Meanwhile, we expect that the unemployment rate held steady at 4.1% in November. Surveys suggest it could fall further before the year is out. The surveys are also consistent with a steady acceleration in wage growth over the next year or so. (See Chart 1.) We have pencilled in a 0.3% m/m gain in average hourly earnings in November, lifting the annual growth rate up from 2.4% to 2.7%.
GOLDMAN SACHS (EST. 225K): We estimate nonfarm payrolls rose 225k in November, compared to a consensus of +200k. November job growth likely benefited from additional normalization in hurricane-affected regions. Additionally, the early Thanksgiving this year is likely to boost retail job growth, as relatively more of the holiday hiring will occur before the survey week. The arrival of over 200k Puerto Ricans in Florida (following Hurricane Maria) could also increase payrolls this month. We estimate a stable unemployment rate (4.1%), as the downward trend (-0.3pp over the last three months) seems due a pause. For average hourly earnings, we estimate +0.3% with upside risk, reflecting somewhat favorable calendar effects and a boost from the unwind of hurricane-related distortions.
JPMORGAN (EST. 175K): We forecast that nonfarm payrolls increased 175,000 in November while the unemployment rate ticked down to 4.0%. The payroll data have been choppy lately, in what appears to be weather-related distortions that depressed the September reading and then boosted the October data. We think that the bulk of the weather-related distortions are now behind us and we look for a more trend-like reading for job growth in the upcoming report. We do think that the November figure will be a bit stronger than the average gain from recent months considering some upbeat employment data in the PMI surveys as well as mostly favorable jobless claims data over the past month or so. For the main details of the payroll count, we believe that private goods-producing industries added 30,000 jobs in November while the private service sector contributed 140,000. We think that government payrolls will continue to trend higher, with another 5,000 jobs added in November. Elsewhere in the establishment survey, we forecast that average hourly earnings increased 0.3% in November (2.7%oya). The tighter labor market likely is putting upward pressure on compensation and we think that the weak October reading reflected noise in what is often a choppy series. We think that the average workweek held at 34.4 hours between October and November; when combined with our forecast for job growth, we estimate that the aggregate hours index ticked up 0.1%. For the household survey, we forecast that the unemployment rate declined from 4.1% to 4.0% between October and November. The October report showed large declines in the household measures of both employment and unemployment. We think that we will probably see more of a bounce back in the employment data than the unemployment data considering that employment has been trending higher in recent years while unemployment has been trending down, and we think that this will result in a decline in the unemployment rate.
LLOYDS (EST. 220K): We look for a solid rise of 220k in November, no change in the unemployment rate at 4.1% and a 0.3% month-on-month rise in average earnings which will pull the annual rate up to 2.7% from 2.4%.
PANTHEON MACROECONOMICS (EST. 225K): We think payrolls rose by a robust 225K, following sustained strength in leading hiring indicators. The return of the last few people kept from work by the hurricanes should lift the numbers too. The unemployment rate should be unchanged at 4.1%. Hourly earnings should rise 0.3%, boosted by a calendar effect.
RBC (EST. 175K): We expect U.S. employment rose by 175k in November. That would be down from the 261k increase in October – a gain that reflected the unwinding of hurricane-related disruptions that slowed job growth to just 18k in September. The November employment data should provide a ‘cleaner’ read and the increase we expect would be above the 140k average gain over the prior two months and well above the pace needed to put downward pressure on the unemployment rate. Although labor markets increasingly look to be bumping up against capacity limits, the U.S. economy has shown clear signs of strength, arguing for near-term job growth to be sustained at a pace well-above trend in the near-term. We expect November’s employment gain will be enough to push the unemployment rate down to 4.0% — building on a 0.3 percentage point drop over the last two months.
SOCIETE GENERALE (EST. 165K): Hurricanes restricted job gains in September to just 18,000, but job growth rebounded by 261,000 in October. Looking through the weather-related swings the last two months, payroll gains have averaged about 169,00 year-to-date, and we expect that the labor market returned to that pace of advance in November, as the economy likely added 165,000 new jobs. Similarly, private payrolls averaged 150,000 over the last three months, 157,000 over the last six months, and 162,000 year-to-date. In other words, the underlying trend does not seem to have shifted dramatically despite the hurricane-related swings recently. The big move in job growth the last two months was in the leisure and hospitality industry, which shed 102,000 spots in September but bounced by 106,000 jobs in October. Prior to those sharp changes, this industry averaged job gains of about 31,000 from March to August. Meanwhile, the anticipated surge in construction jobs failed to materialize in October, rising by just 11,000, the same as in September and in line with the six-month average rise of 10,000. As we noted prior to the last report, a shortage of construction workers likely held back growth in this sector. One bright spot in October was manufacturing, which added 24,000 positions and has added an average of 25,000 jobs per month in the last three months. In any case, we expect that softness in retail, a modest cooling in factory job growth, a more trend-like reading in the leisure industry restrained payrolls, although a reading in line with our estimate would still be a healthy figure. In any case, average hourly earnings jumped by 0.5% in September but were flat in October, pushing the yoy rate down from 2.8% to 2.4%. We expect that earnings increased by 0.2% in November, which would push the yoy rate back up to 2.6%. We also expect an unchanged unemployment rate, and we anticipate that the workweek may have remained steady.
TD SECURITIES (EST. 175K): We expect nonfarm payrolls to advance by 175k in November. Data on persons not at work due to bad weather suggest that hurricane impacts should have faded by this month, allowing payrolls to print closer to their current trend in the 150-200k range. Upward revisions to the prior two months are also likely. Meanwhile, labor market indicators (regional Fed surveys and consumer confidence) remained supportive of solid job growth. We expect the unemployment rate to tick higher to 4.2% from 4.1%, given the outsized decline in labour force participation that has the potential to correct. We also look for a relatively modest 0.2% m/m increase in average hourly earnings, as calendar effects are less favourable this month. Still, that should leave earnings tracking higher on a y/y basis at 2.6% vs 2.4%.
UBS (EST. 190K): Our payrolls forecast for November reflects idiosyncratic swings in employment in a number of industries. State level data suggest that the storm-related swings in payrolls are mostly in the past. In Texas, the payroll rise in October more than made up for the shortfall (relative to trend) in September. In Florida, the October bounce almost made up the September shortfall. However, we still see some potential for storm-related employment gains in November, and the jobs data will also reflect businesses’ preparation for the holiday shopping season. We estimate a fairly rapid increase in payrolls in leisure and hospitality. Within leisure and hospitality, food services employment reversed most but not all of its hurricane-related weakness in October—suggesting some potential for a further temporary boost to November. Food service payrolls had been rising about 25k per month in the year before the storm, with some hint of faster increase in Q2. We allow for a 40k rise. There are risks on both sides of the estimate: industry employment had been on the soft side prior to the storm effects—suggesting either more to make up or a somewhat softer underlying trend. Growth of food services sales has been slowing. We forecast softness in retail payrolls but strength in transport and warehousing as online sales continue to shift retail distribution. Last year, retail payrolls weakened throughout Q4, while couriers and warehousing payrolls offset much of their deterioration. We expect a repeat this year, signalled by the pattern in retail and transportation hiring plans. Strength in construction payrolls is likely, amid momentum in housing starts and new home sales. We expect another solid gain in manufacturing payrolls. With strength in relatively high paid manufacturing and construction and weakness in lower-paid retail, average hourly earnings probably rose slightly above trend, +0.3%m/m. Wages would be pick up from 2.4%y/y in October to 2.7%y/y in November, reaccelerating to their Q3 pace. The unemployment rate was probably unchanged following a steep, 0.3 pt decline since August.
WELLS FARGO (EST. 220K): We expect nonfarm payrolls to rise by 220,000 in November, which should keep the unemployment rate steady at 4.1%. Overall, job growth should average 197,000 in the fourth quarter, and we expect the unemployment rate to end the year at the current 4.1% rate. We continue to expect the pace of job growth to gradually decelerate next year as slack in the labor market continues to diminish. By the end of 2018 we see the unemployment rate at 3.9%.